1
No. 14-8003
IN THE UNITED STATES COURT OF APPEALSFOR THE SEVENTH CIRCUIT
MOTOROLA MOBILITY LLC,
Plaintiff and Appellant,
vs.
AU OPTRONICS CORPORATION, et al.,
Defendants and Appellees.
On Interlocutory Appeal from an Order of theUnited States District Court for the Northern District of Illinois
Case No. 09-cv-6610
APPELLANT’S OPENING BRIEF
Jerome A. MurphyMatthew J. McBurneyCROWELL & MORING LLP1001 Pennsylvania Avenue, N.W.Washington, D.C. 20004(202) 624-2500
Janet I. LevineJason C. MurrayJoshua C. StokesCROWELL & MORING LLP515 South Flower St., 40th FloorLos Angeles, CA 90071(213) 622-4750
Thomas C. GoldsteinEric F. CitronGOLDSTEIN & RUSSELL, P.C.7475 Wisconsin AveBethesda MD, 20814(202) 362-0636
Kenneth L. AdamsR. Bruce HolcombChristopher T. LeonardoADAMS HOLCOMB LLP1875 Eye Street NWWashington, DC 20006(202 580-8820
Counsel for Petitioner Motorola Mobility LLC
Case: 14-8003 Document: 84 Filed: 08/29/2014 Pages: 126
RULE 26.1 DISCLOSURE STATEMENT
Appellate Court No: 14-8003 --------Short Caption: Motorola Mobility LLC v. AU Optronics Corporation
To enable the judges to determine whether recusal is necessary or appropriate, an attorney for a non-governmental party or amicus curiae, or a private attorney representing a government party, must furnish a disclosure statement providing the following information in compliance with Circuit Rule 26.1 and Fed. R. App. P. 26.1.
The Court prefers that the disclosure statement be filed immediately following docketing; but, the disclosure statement must be filed within 21 days of docketing or upon the tiling of a motion, response, petition, or answer in this court, whichever occurs first. Attorneys are required to file an amended statement to reflect any material changes in the required information. The text of the statement must also be included in front of the table of contents of the party's main brief. Counsel is required to complete the entire statement and to use N/ A for any information that is not applicable if this form is used.
[ ] PLEASE CHECK HERE IF ANY INFORMATION ON THIS FORM IS NEW OR REVISED AND INDICATE WHICH INFORMATION IS NEW OR REVISED.
(I) The full name of every party that the attorney represents in the case (if the party is a corporation, you must provide the corporate disclosure information required by Fed. R. App. P 26.1 by completing item #3):
Motorola Mobility LLC
(2) The names of all law firms whose partners or associates have appeared for the party in the case (including proceedings in the district court or before an administrative agency) or are expected to appear for the party in this court:
Goldstein & Russell, P.C.
(3) If the party or amicus is a corporation:
i) Identify all its parent corporations, if any; and
ii) list any publicly held company that owns 10% or more of the party's or amicus' stock:
Date: 4/2/2014 Attorney's Signature: s/ Thomas Goldstein
Attorney's Printed Name: Thomas Goldstein ----------------------------------------------Please indicate if you are Counsel of Record for the above listed parties pursuant to Circuit Rule 3(d). Yes X No Address: Goldstein & Russell, P.C., 5225 Wisconsin Avenue, NW, Suite 404, Washington, DC 20015
Phone Number: (202) 362-0636 Fax Number: (866) 574-2033
E-Mail Address: [email protected]
rev. 01/08 AK
Case: 14-8003 Document: 84 Filed: 08/29/2014 Pages: 126
DISCLOSURE STATEMENT
Appellate Court No:--------
Short Caption: Motorola Mobility LLC v. AU Optronics Corporation, et al.
To enable the judges to determine whether recusal is necessary or appropriate, an attorney for a non-governmental party or amicus curiae, or a private attorney representing a government party, must furnish a disclosure statement providing the following information in compliance with Circuit Rule 26.1 and Fed. R. App. P. 26.1.
The Court prefers that the disclosure statement be filed immediately followingdocketing; but, the disclosure tatement must be filed within 21 days of docketing or upon the filing of a motion, response petition, or answer in tlus court, whichever occurs first. Attorneys are required to file an amended statement to retlect a11y material changes in tbe required information. The text of the statement must also be included in front of the table of contents of the party's main brief. Counsel is required to complete the entire statement and to use N/ A for any information that is not applicable if this form is used.
PLEASE CHECK HERE IF ANY INFORMATION ON THIS FORM IS NEW OR REVISED AND INDICATE WHICH INFORMATION IS NEW OR REVISED.
(1) The full name of every party that the attorney represents in the case (if the party is a corporation, you must provide the corporate disclosure information required by Fed. R. App. P 26.1 by completing item #3):
Motorola Mobility LLC
(2) The names of all law firms whose partners or associates have appeared for the party in the case (including proceedings in the district court or before an administrative agency) or are expected to appear for the party in this court:
Crowell & Moring LLP
Goldstein & Russell, P.C.
(3) If the party or amicus is a corporation:
i) Identify all its parent corporations, if any; and
Google Inc.
ii) list any publicly held company that owns 10% or more of the party's or amicus' stock:
Google Inc.
Date: 2/24/2014
Please indicate if you are Counsel of Record for the above listed parties pursuant to Circuit Rule 3(d). Yes
Address: Crowell & Moring LLP
515 South Flower St., 40th Floor, Los Angeles, CA 90071
Phone Number: (213) 622-4750 Fax Number: (213) 622-2690
E-Mail Address: [email protected]
No X
rev. 01/08 AK
Case: 14-8003 Document: 84 Filed: 08/29/2014 Pages: 126
CIRCUIT RULE 26.1 DISCLOSU JU: STATEMENT
Appdlatc Court No: ---------
Short Caption: Motorola Mobility LLC v. AU Optronics Corporation , et al.
To enable the judges to dctcnninc whether rccusal is necessary or appropriate, an allorncy for a non-govcrnmcntal party or amicus curiae, or a private allorncy repn.:scnting a government party, must furnish a disclosure statement providing the foll owing information in compliance with Circuit Rule 26. I and J-ed. R. App. J' . 26.1 .
The ~ourt prcfi.:rs that the disclosure statement be filed immediately followin g docketing; but, the disclosure statement must be filed within 21 days of docketing or upon the tiling of a motion, response, petition, or answer in this court, whichever occurs first. Allorncys arc required to file an amended statement to reflect any material changes in the required information. The text of the statement must also be included in front of the table of contents of the party's main brief. Counsel is rt'lJUired to complete thl' entire statement and to usc N/A for any information that is not applicahll' if this fonn is used.
PLEASE CHEC K HERE II• ANY INFORMATIO N O N T illS FORM IS Nr 26.1 by completing item #3 ):
Motorola Mobility LLC
(2) The names of all law firms whose partners or associates have appeared fo r the party in the case (including proceedings in the district court or before an admin istrat ive agency) or arc expected to appear for the party in this court:
Crowell & Moring LLP
Goldstein & Russell, P.C.
(3) If the party or amicus is a corporation :
i) Identify all its parent corporations, if any; und
Google Inc.
ii) li st any publicly held company that owns I0°o or more of the party's or amicus ' stock:
Google Inc.
Date 2/24/2014
Please tndtcate if you arc Colmsl!l of Record for the above listed partie. Yc~ X Address: Crowell & Monng LLP
'u
1001 Pennsylvania Ave. N.W .. Washington DC 20004 --~~-----------------------------------------------
Phone umber (202) 624-2500 ~---------------------------
Fax Number (202) 628-511 6
E-M
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TABLE OF CONTENTS
TABLE OF AUTHORITIES ...................................................................................... iii
INTRODUCTION ........................................................................................................1
JURISDICTION...........................................................................................................3
STATEMENT OF THE ISSUE ...................................................................................3
STATEMENT OF THE CASE.....................................................................................4
I. FACTUAL BACKGROUND .............................................................................4
A. Defendants Conspire To Fix LCD Prices...............................................4
B. Defendants Target Motorola’s Large Share Of The U.S.Mobile-Phone Market.............................................................................5
C. Defendants Successfully Overcharge Motorola ThroughCompany-Wide Negotiations With Its U.S. Parent ..............................7
D. The Cartel Is Discovered And Prosecuted...........................................10
II. PROCEEDINGS BELOW...............................................................................11
STANDARD OF REVIEW.......................................................................................165
SUMMARY OF ARGUMENT ...................................................................................16
ARGUMENT..............................................................................................................20
I. THE FTAIA DOES NOT LIMIT, AND WAS NOT INTENDEDTO LIMIT, CLAIMS BY THE VICTIMS OF TRANSACTIONSTHAT HARM U.S. MARKETS.......................................................................20
II. DEFENDANTS’ CONDUCT TARGETED IMPORTCOMMERCE...................................................................................................27
III. DEFENDANTS’ CONDUCT AT LEAST SATISFIES THEFTAIA’S DIRECT-EFFECTS EXCEPTION ..................................................31
A. Defendants’ Conduct Had A Direct, Substantial, AndReasonably Foreseeable Effect On U.S. Commerce............................32
B. The Effects Of Defendants’ Conduct Give Rise To ASubstantive Claim Under The Sherman Act. .....................................35
1. The “gives rise to” element requires only that theplaintiff complain about anticompetitive conduct. ...................35
2. Motorola has a claim arising purely fromanticompetitive effects on U.S. import commerce. ...................40
a. The FTAIA’s “gives rise to” element does notincorporate Illinois Brick................................................42
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b. Even if the FTAIA incorporated IllinoisBrick, there is no Illinois Brick issue here. ...................45
3. The MDL court correctly held that Motorola has aclaim under the “single-price theory.” ......................................47
IV. MOTOROLA’S “CATEGORY 3” PURCHASES ARE ALSOSUBJECT TO A SHERMAN ACT CLAIM ....................................................50
CONCLUSION...........................................................................................................55
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TABLE OF AUTHORITIES
Page(s)
Cases
Animal Sci. Prods., Inc. v. China Nat’l Metals,702 F. Supp. 2d 320 (D.N.J. 2010)......................................................................... 13
Animal Science Products v. China Minmetals Corp.,654 F.3d 462 (3d Cir. 2011)........................................................................ 27, 28, 31
Brooks v. Ross,578 F.3d 574 (7th Cir. 2009) .................................................................................. 16
California v. ARC Am. Corp.,490 U.S. 93 (1989) ............................................................................................ 38, 43
Copperweld Corp. v. Independence Tube Corp.,467 U.S. 752 (1984) .......................................................................................... 27, 44
Empagran S.A. v. F. Hoffmann-LaRoche, Ltd.,417 F.3d 1267 (D.C.Cir. 2005) ......................................................................... 48, 49
F. Hoffmann-La Roche Ltd. v. Empagran S.A.,542 U.S. 155 (2004) .........................................................................................passim
Hanover Shoe, Inc. v. United Shoe Mach. Corp.,392 U.S. 481 (1968) .......................................................................................... 41, 47
Hartford Fire Ins. Co. v. California,509 U.S. 764 (1993) .................................................................................... 21, 22, 53
Illinois Brick Co. v. Illinois,431 U.S. 720 (1977) .........................................................................................passim
In re Beef Indus. Antitrust Litig.,600 F.2d 1148 (5th Cir.1979) ................................................................................. 46
In re Brand Name Prescription Drugs Antitrust Litig.,123 F.3d 599 (7th Cir. 1997) .................................................................................. 45
In re Dynamic Random Access Memory Antitrust Litig.,546 F.3d 981 (9th Cir. 2008) ............................................................................ 48, 49
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In re Monosodium Glutamate Antitrust Litig.,477 F.3d 535 (8th Cir. 2007) ............................................................................ 48, 49
Industria Siciliana Asfalti, Bitumi, S.p.A. v. Exxon Research & Eng’gCo., No. 75 Civ. 5828, 1977 WL 1353 (S.D.N.Y., Jan.18, 1977)............................ 24
Jewish Hosp. Ass’n v. Stewart Mech. Enters., Inc.,628 F.2d 971 (6th Cir. 1980) .................................................................................. 46
Kremer v. Chem. Constr. Corp.,456 U. S. 461 (1982) ............................................................................................... 53
Lotes Co. v. Hon Hai Precision Indus. Co.,753 F.3d 395 (2d Cir. 2014)........................................................................ 34, 40, 47
Mannington Mills, Inc. v. Congoleum Corp.,595 F.2d 1287 (3d Cir. 1979).................................................................................. 53
Minn-Chem, Inc. v. Agrium Inc.,683 F. 3d 845 (7th Cir. 2012) (en banc) ..........................................................passim
Timken Roller Bearing Co. v. United States,341 U.S. 593 (1951) ................................................................................................ 24
Turicentro, S.A. v. Am. Airlines Inc.,303 F.3d 293 (3d Cir. 2002).............................................................................. 13, 27
U.S. Gypsum Co. v. Indiana Gas Co., Inc.,350 F.3d 623 (7th Cir. 2003) .................................................................................. 45
United Mine Workers v. Gibbs,383 U.S. 715 (1966) ................................................................................................ 53
United Phosphorus, Ltd. v. Angus Chem. Co.,322 F.3d 942 (7th Cir. 2003) ............................................................................ 22, 24
United States v. Alcoa,148 F.2d 416 (2d Cir. 1945).............................................................................passim
United States v. Am. Tobacco Co.,221 U.S. 106 (1911) ................................................................................................ 24
United States v. Hui Hsiung,No. 12-10514, 2014 WL 3361084 (9th Cir. July 10, 2014)........................ 11, 12, 20
United States v. Nat’l Lead Co.,332 U.S. 319 (1947) ................................................................................................ 24
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Williams v. C.I.R.,1 F.3d 502 (7th Cir. 1993) ...................................................................................... 15
Williams v. Seniff,342 F.3d 774 (7th Cir. 2003) .................................................................................. 15
Wolf v. Fitchburg,870 F.2d 1327 (7th Cir. 1989) ................................................................................ 16
Statutes
15 U.S.C. §1...........................................................................................................passim
15 U.S.C. §6a.........................................................................................................passim
19 U.S.C. §1337............................................................................................................ 29
28 U.S.C. §1292(b) ................................................................................................... 3, 15
28 U.S.C. §1331.............................................................................................................. 3
Other Authorities
H.R. Rep. No. 97-686 (1982) .................................................................................passim
Restatement (Second) of Judgments §24(1) (1980) .................................................... 53
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INTRODUCTION
For almost a decade, defendants secretly conspired to fix the price of LCD
panels—a key component in mobile phones. They targeted plaintiff Motorola,1 a
U.S. company, coveting the LCD demand created by Motorola’s large share of the
U.S. mobile-phone market. They even set up offices in Illinois to facilitate
negotiations and help design components for Motorola’s U.S.-bound phones. Thus,
while defendants delivered most of their LCDs to Motorola’s foreign manufacturing
subsidiaries, they did so anticipating that many of them would be immediately
incorporated into Motorola phones imported into and sold in the United States.
And so they were: During the relevant period, Motorola sold more phones in the
U.S. than any other country, and each was more expensive to make, import, and
purchase because the price of an essential component had been fixed. Ultimately,
defendants’ conduct put billions in price-fixed LCD panels into the American
market through Motorola products, at a huge cost to Motorola, U.S. consumers, and
the domestic economy.
Most defendants admitted their Sherman Act violations or were prosecuted
by the United States Department of Justice and convicted—leading to jail sentences
for key executives and billions in fines reflecting the domestic harm they caused.
Some even acknowledged targeting Motorola as a basis for their pleas and avoided
1 Motorola, Inc. filed this lawsuit in 2009. It was succeeded by plaintiff MotorolaMobility after a corporate reorganization. For simplicity, we refer to the U.S. parent as“Motorola” and to relevant subsidiaries with more particularized descriptions. Motorolahas been headquartered in Illinois since its founding in 1928. Other facts herein regardingMotorola’s corporate operations are limited to the conspiracy period.
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restitution orders on the theory that U.S. civil actions would compensate their
victims. But when Motorola sought to recover for the very same conduct,
defendants surprisingly argued that the Sherman Act did not apply to any LCD
panels delivered abroad. An MDL court disagreed and remanded the case for trial,
but the district court below reversed that decision, reaching a dangerous result for
U.S. antitrust enforcement.
The Sherman Act’s geographic boundaries are clarified by the Foreign Trade
Antitrust Improvement Act (“FTAIA”), 15 U.S.C. §6a, which puts certain “conduct”
involving wholly foreign commerce beyond the Sherman Act’s reach for both private
plaintiffs and the federal government. See Minn-Chem, Inc. v. Agrium Inc., 683 F.
3d 845, 863 (7th Cir. 2012) (en banc). The FTAIA provides that such conduct falls
outside the Sherman Act unless it (1) also “involves” U.S. import commerce or (2)
has a sufficiently proximate “effect” on U.S. import or domestic commerce.
As these caveats indicate (and the legislative history overwhelmingly
confirms), the FTAIA was enacted to protect U.S. companies from the application of
U.S. antitrust laws when their allegedly anticompetitive activities affected only
foreign markets, while preserving the Sherman Act claims of U.S. companies and
consumers with respect to conduct that does cause domestic harms. Indeed, there is
no plausible account of the text or congressional intent that would immunize foreign
cartels that target American companies with price-fixed products they know are
headed straight for the United States. Both civil actions and DOJ enforcement
vitally depend on that most basic point.
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As Motorola explains below, defendants’ conduct is clearly subject to U.S. law
because it both targeted U.S. import commerce and at least affected U.S. commerce
in the way the FTAIA requires. Indeed, even applying additional limitations
proposed by defendants that have no basis in the FTAIA, Motorola still has a viable
Sherman Act claim. The contrary decisions below should be reversed.
JURISDICTION
The district court had jurisdiction under 28 U.S.C. §1331, as this case arises
under the Sherman Act, 15 U.S.C. §1. It entered summary judgment for defendants
regarding most of Motorola’s claim on January 23, 2014. It certified that order for
review pursuant to 28 U.S.C. §1292(b) on February 13, 2014. Motorola timely
requested interlocutory appeal on February 24, 2014, which this Court granted on
July 15, 2014. This Court has jurisdiction under §1292(b).
Defendants delivered one percent of their price-fixed sales to Motorola
directly into the United States. Those deliveries are concededly subject to U.S. law,
and the decisions below permit that portion of Motorola’s claim to go to trial. This
appeal concerns the sales delivered to Motorola’s manufacturing subsidiaries
abroad. The same trial issues (mostly, damages) will arise for all the sales at issue,
but will not impact the FTAIA question presented in this appeal.
STATEMENT OF THE ISSUE
Defendants fixed the price of LCD panels. They targeted Motorola, a U.S.
company, and negotiated a single price applicable to all Motorola LCD purchases
whether delivered to the United States or to Motorola’s manufacturing subsidiaries
abroad. Motorola controlled all the material terms of the transactions, and
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defendants knew that a substantial number of panels delivered abroad would be
immediately incorporated into Motorola products for importation and sale to U.S.
customers at an inflated cost. The question presented is:
Whether defendants’ sales of price-fixed LCD panels delivered to Motorola’s
foreign manufacturing subsidiaries are subject to the Sherman Act.
STATEMENT OF THE CASE
I. FACTUAL BACKGROUND
A. Defendants Conspire To Fix LCD Prices
Defendants manufacture LCD panels, which use a liquid crystal film to
display information on a thin surface. Such displays are an important component
in designing consumer-friendly mobile phones.
Unlike some inputs, however, LCD panels have no utility apart from their
component value. See Third Amended Complaint (“TAC”) ¶78, SA155. Once a
device manufacturer chooses a supplier, the supplier delivers a bespoke panel
whose only possible use is inclusion in the manufacturer’s product. Accordingly, the
markets for LCD panels and “LCD products”—i.e., products incorporating LCD
panels—are inextricably intertwined, and the demand for panels derives directly
from the demand for LCD products. TAC, ¶¶78, 80, SA155.
Beginning as early as 1998, and continuing through 2006, defendants
secretly conspired to fix LCD-panel prices. TAC ¶2, SA135. Their conduct involved
the most fundamental antitrust violations: express agreements on pricing and on
how to limit output to effectuate the conspiracy. Id. ¶¶101-106, SA162-64. These
were not offhand conversations among low-level sales reps; this was a brazen and
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organized effort that included top-ranking executives at sophisticated companies.
Id. ¶¶104-105, SA163. The result was a highly effective cartel that consistently
inflated LCD prices. Id. ¶¶208-222, SA193-96.
B. Defendants Target Motorola’s Large Share Of The U.S. Mobile-Phone Market
Motorola is an American company headquartered in Illinois that designs and
produces high-end consumer electronics. It has long been a critical player in the
U.S. mobile-phone market. Throughout the relevant period, Motorola had a top
share of the U.S. market, and sold more phones in the United States than anywhere
else.
For that reason, Motorola became a major target for the cartel. As the MDL
court found, “defendants targeted Motorola in the United States for defendants’
sales and marketing of LCD panels,” because “[d]efendants knew that Motorola sold
mobile devices in the United States and that the United States was one of the
largest markets for mobile devices in the world.” Order Denying Summ. J. (“SJ
Order”), A32. Countless internal communications from defendants confirm their
focus on Motorola’s U.S. market share and desire to access this source of LCD
demand. See Motorola’s Opp. To Summ. J. 19-20 & nn.29-33 (“SJ Opp.”), SA242-43.
One representative example is a presentation from defendant AUO showing the
number of mobile-phone users in North America, noting Motorola’s U.S. operations,
and setting a goal to become one of Motorola’s top suppliers. See id. n.33, SA243.
Defendants thus did not cartelize the LCD-panel market in a vacuum, only
incidentally harming companies like Motorola insofar as they happened to use
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LCDs. To the contrary, defendants’ illegal conduct reflected a particularized effort
to target Motorola and access its demand for LCD panels in its U.S.-bound products.
Defendants established subsidiaries in Illinois to better target Motorola. SJ Order,
A32 (collecting statements acknowledging that defendants established Illinois
offices to get “direct access to Moto/Chicago and its global network”). They
exchanged information about their negotiations with Motorola, and used that
information in determining prices. SJ Opp. 21-27 & nn.34-41, SA244-50. In one
example, a Samsung executive responded to a Motorola discount request by asking
for time to discuss the “new spec” with the factory, whereupon he actually called his
co-conspirators to ask how they were responding. Based on the information he
obtained, he recommended to his superiors that they maintain the higher price. See
id. 26, SA249; 21-25, SA244-48 (detailing other illegal exchanges of Motorola-
specific information). Defendants also monitored the “street prices” of U.S. LCD
products and used those prices “as a benchmark for establishing, organizing, and
tracking their price-fixing of LCD Panels.” TAC ¶179, SA186; SJ Opp. 18 & n.23,
SA241.
Briefly put, defendants’ price-fixing did not just foreseeably affect the U.S.
market for Motorola’s LCD-containing products; rather, that was a carefully
calculated and fully intended result. Defendants well knew that their conduct
would raise the price of LCD products Motorola made for, imported into, and sold to
customers in the United States, and targeted Motorola to access that substantial
source of LCD demand. TAC ¶¶172-179, SA183-86.
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C. Defendants Successfully Overcharge Motorola ThroughCompany-Wide Negotiations With Its U.S. Parent
Defendants, like many electronic-components producers, manufactured their
product primarily in Asia. Motorola, like many American companies, developed
manufacturing operations in Asia to be closer to its suppliers and take advantage of
lower production costs. Defendants thus delivered most of their LCD panels to
Motorola’s manufacturing subsidiaries in China and Singapore. But as defendants
knew, all aspects of Motorola’s mobile-phone business began and ended with the
U.S. parent: Motorola designed the phones; selected component parts and
manufacturers; determined the prices, quantities, and terms on which those
components would be purchased throughout the company; managed the
manufacturing and distribution process; and dictated the terms on which finished
products were imported and sold to Motorola’s customers in the United States. See
TAC ¶¶146-156, SA176-79.2
In particular, Motorola’s purchasing decisions were governed by its design
and procurement teams based in Illinois. SJ Opp. 2-10, SA225-33. These teams
were responsible for choosing LCD suppliers who met Motorola’s technological and
logistical needs. Id. 6, SA229. They would then “engage potential LCD panel
suppliers in pricing negotiations in order to establish a single LCD panel price that
would apply to Motorola’s operations around the world.” Id. 7, SA230. These teams
2 These facts are laid out in exhaustive detail at SJ Opp. 3-28 & nn.3-42, SA226-51.Some are disputed, but must nonetheless be assumed in Motorola’s favor in this proceduralposture. Infra pp.15-16.
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made the final determinations with respect to negotiating prices and allocating
shares among suppliers. See id. 9, SA232. Motorola’s foreign subsidiaries would
issue and take delivery on purchase orders, but (as the MDL court found) the
material terms were controlled by Motorola itself. SJ Order, A33.
Again, defendants’ conduct reflected their understanding that access to
Motorola’s LCD demand would come from its U.S.-based operations. Not only did
defendants establish Illinois offices, they sent staff to work with Motorola for weeks
at a time, becoming integral parts of the design and manufacturing process. SJ
Opp. 18-19, SA241-42. The issues defendants’ engineers addressed related
specifically to U.S.-bound LCD products, TAC ¶¶84-86, SA156-57; for example,
Samsung engineers described one such problem, related to polarized sunglasses, as
“a problem in ‘cell phones for the US market.’” TAC ¶83, SA156. Defendants’ sales
officials and executives likewise met routinely with Motorola personnel in Illinois to
negotiate prices and supply deals. TAC ¶¶146-55, SA176-78.
Having integrated themselves into the design of Motorola’s U.S. products,
and intentionally manipulated Motorola’s price negotiations by illegally exchanging
Motorola-specific information, defendants were able to establish an inflated price
for Motorola’s LCD purchases throughout its worldwide supply chain. That single,
inflated price—finally approved by Motorola executives in the United States—was
applied to all Motorola purchases, wherever they were delivered: As one of
defendants’ own employees put it, “there was one global price. … [W]herever
Motorola would purchase LCD [panels]—in different facilities Motorola would
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purchase the product, they would all purchase at the, quote-unquote, Motorola
price.” SJ Opp. 10, SA233.
Indeed, although defendants have constantly tried to emphasize the separate
existence of Motorola and its corporate subsidiaries, that attempted distinction has
always obscured the substantive reality of an integrated, company-wide process for
designing, building, importing, and selling Motorola phones. Motorola designed the
phones in the United States (with defendants’ input on LCD panels); Motorola
sourced its components and controlled all the terms of their purchase from the
United States (in negotiations with defendants, which they rigged through illegal
Motorola-specific price communications); and Motorola imported those phones and
sold them to U.S. customers (at prices the defendants monitored, to better
coordinate their conspiracy). Motorola also repatriated the profits from these
subsidiaries, id. 27-28, SA250, whose only business was making Motorola products.
Thus, as Motorola has consistently explained, it functioned with its subsidiaries as
a “single enterprise,” TAC ¶¶6, 153, 196, SA136, 178, 190, and ultimately suffered
the injury from defendants’ price-fixing conduct as a result. Id. ¶¶6, 156, 175, 196-
97, SA136, 179, 184-85, 190. That is true both as a technical matter—because
“Motorola, Inc. itself” imported its LCD products for sale at a higher cost, see, e.g.,
id. ¶¶172-79, SA183-86—and as a matter of substance, because the corporate
distinction between Motorola and its subsidiaries has no antitrust-economics
relevance in either the LCD-panel or mobile-phone market.
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D. The Cartel Is Discovered And Prosecuted
The cartel was eventually discovered and prosecuted by several antitrust
authorities, including the United States. Over a dozen executives were sentenced to
U.S. prison terms, and defendants paid record criminal fines. TAC ¶¶124-38,
SA169-74. Some defendants specifically acknowledged fixing the price of panels
sold to Motorola as the basis for their allocution. See Plea Agreement, United States
v. Sharp Corp., SA45; Plea Agreement, United States v. Epson Imaging Devices
Corp., SA29.
In calculating the affected volume of commerce, DOJ included all LCD panels
incorporated into U.S.-bound products by the subsidiaries of U.S. manufacturers,
and the court approved fines based on that calculation. See TAC ¶¶188-190, SA188-
89. Such fines reflect DOJ’s longstanding position that component price-fixing has
a serious anticompetitive impact on the U.S. economy when those components are
imported in finished products. See, e.g., Br. of U.S., 7-8, 21, 24, Minn-Chem, Inc. v.
Agrium, Inc., No. 10-1712 (7th Cir. Jan. 12, 2012) (Dkt. 62-2) (“U.S. Minn-Chem
Br.”); Leah Nylen, Law360 (Feb. 21, 2014), SA297 (reporting Deputy AAG Snyder’s
statement that U.S. law applies to foreign cartels with respect to goods “sold to
wholly owned subsidiaries of [U.S. companies that] were incorporated into finished
products that US OEMs purchased and then sold to US consumers in the United
States.”). Similarly, in prosecuting defendant AUO—which refused to plead
guilty—DOJ sought and obtained an instruction that defendants could be convicted
under the Sherman Act for fixing the price of panels incorporated into U.S.-bound
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products. See United States v. Hui Hsiung, No. 12-10514, 2014 WL 3361084, at *7
(9th Cir. July 10, 2014).
Defendants notably resisted a restitution order in these criminal proceedings
on the theory that private civil actions in U.S. courts under U.S. law would
compensate victims. That promise was a key reason why DOJ agreed not to seek
restitution and the courts accepted defendants’ guilty pleas without it. TAC ¶189,
SA188-89.
II. PROCEEDINGS BELOW
Motorola filed an individual damages suit in Illinois, which was consolidated
with other victims’ in a California MDL. Motorola sought recovery for three
categories of purchases: (1) panels delivered to Motorola in the United States
(“Category 1,” about 1% of purchases); (2) panels delivered to Motorola facilities
abroad and incorporated into LCD products sold in the United States (“Category 2,”
about 42%); and (3) panels delivered abroad and incorporated into products
ultimately sold overseas (“Category 3,” about 57%). TAC ¶¶185-187, SA188.
Even though defendants’ guilty pleas and fines reflected Category 2 sales—
and defendants resisted restitution on the ground that U.S. victims would be
compensated—defendants argued that Motorola could not recover under U.S. law
for any panels that were initially delivered abroad, even those immediately
incorporated into U.S.-bound phones. Defendants argued that their deliveries
created only “foreign injury” not subject to U.S. law. See, e.g., Order Granting Mot.
To Dismiss (“MTD Order”), A10 (“Defendants contend that Motorola’s foreign
injuries occurred when the panels were purchased abroad, before Motorola imported
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those panels (as contained in finished products) into the United States.”). They
argued that Motorola needed to be “held” to its decision to incorporate separate
foreign subsidiaries, and (in the words of the FTAIA) that their conduct could
neither “involve” imports nor satisfy the “direct-effects” exception insofar as the first
purchaser of their product was technically a foreign corporation taking delivery
abroad—even if the purpose of the delivery was immediate importation into the
United States in finished products. Id.
Motorola opposed, emphasizing that defendants had harmed Motorola itself
in the United States by targeting and adversely affecting the U.S. market for LCD
products that contained their price-fixed panels. See Motorola’s Opp. To Mot. To
Dismiss at 3, (“MTD Opp.”), SA69. Where defendants urged the court to focus on
the “foreign injury” allegedly experienced by Motorola’s subsidiaries, Motorola
urged the Court to recognize that Motorola itself was injured by defendants’
conduct, which had necessarily increased the price that Motorola was paying to
manufacture and import its LCD-containing products for sale in the United States.
Id. 3, 6, 19-21, SA69, 72, 85-87. Motorola specifically objected to a version of the
FTAIA’s “direct-effects” exception that would incorporate the direct-purchaser rule
from Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), and ignore the injuries
defendants knowingly caused to Motorola’s U.S. business through their deliveries
abroad. MTD Opp. 20, SA86.
The MDL court initially sided with defendants. Citing Third Circuit
precedents, it held that defendants’ conduct could not “involve” imports because it
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was Motorola, not defendants, who imported the price-fixed panels. See MTD
Order, A7 (citing Turicentro, S.A. v. Am. Airlines Inc., 303 F.3d 293, 303 (3d Cir.
2002) and Animal Sci. Prods., Inc. v. China Nat’l Metals, 702 F. Supp. 2d 320, 327
(D.N.J. 2010)). And in assessing the “direct-effects” exception, the MDL court
accepted defendants’ position that Motorola could assert only “foreign injuries”
suffered by its subsidiaries, which it viewed as upstream from any effects on U.S.
commerce that resulted from importing the phones. See MTD Order, A10. The
court acknowledged Motorola’s allegations that defendants’ conduct “directly and
substantially affected the price of LCD Panels and products which contained LCD
panels … purchased in the United States” and that “[t]hese effects g[a]ve rise to
Motorola’s antitrust claim,” id., A9 (emphasis added), but ultimately paid those and
other similar allegations no mind.
Instead, the MDL court considered only whether Motorola’s complaint had
sufficiently alleged a connection between U.S. LCD-panel prices and the “global
prices” that caused the subsidiaries’ allegedly “foreign” injuries—concluding that it
did not. Id., A10. It thus found that the domestic effects of defendants’ conduct did
not “give rise to” the claim by Motorola’s subsidiaries under the FTAIA’s direct-
effects exception, see 15 U.S.C. §6a(2), and granted dismissal with leave to amend.
MTD Order, A10.
Because the MDL court signaled that it was receptive to a theory predicated
on a connection between the U.S. and global prices that Motorola paid for LCDs
(hereafter, the “single-price theory”), Motorola emphasized that argument going
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forward. After amending its complaint, Motorola successfully opposed a second
motion to dismiss, and a motion for summary judgment. See A16. The MDL court
ultimately concluded that there was substantial evidence that Motorola’s
subsidiaries purchased LCD panels “at the price and quantity determined by
Motorola in the United States” and applicable to all Motorola purchases, foreign
and domestic. SJ Order, A33.
In pressing this theory, however, Motorola continued to emphasize that it
sustained its own injuries, in the United States, when defendants knowingly
targeted and adversely affected the market for Motorola’s LCD-containing products,
which Motorola itself imported for sale to U.S. customers. See, e.g., Motorola’s Opp.
To Mot. To Dismiss Second Am. Compl. at 2, 23-24 (“Second MTD Opp.”), SA98,
119-20; TAC ¶¶146, 153-56, 172, 174, 178-79, 192, 196-97, SA176, 178-79, 183-84,
185-86, 189, 190. Motorola further emphasized that it functioned with its
subsidiaries as a “single enterprise,” ultimately suffering the relevant harms. See
Second MTD Opp. 23-24, SA119-20. But the MDL court did not change its view on
these points. Having endorsed the separate, single-price theory, it simply
remanded the case to the Northern District of Illinois for trial.
At that point, defendants asked the district court to reconsider and reverse
the MDL decision. Motorola opposed largely on the grounds that Seventh Circuit
precedent unambiguously prohibits district courts from simply overruling matters
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determined in MDL proceedings.3 It also argued that any reconsideration should
include whether defendants’ conduct had “involved” import commerce based on
defendants’ targeting of Motorola’s U.S.-bound LCD products. In this regard,
Motorola emphasized that the Third Circuit had rejected the rule the MDL court
had adopted, reversing the very opinions it cited. See Motorola’s Opp. To
Reconsideration at 23-24, SA293-94.
Without further briefing or merits argument, the district court granted
reconsideration. It refused to revisit the other matters addressed by the MDL court,
but did reconsider the single-price theory and held that—in its view of the same
facts—that theory did not suffice under the FTAIA’s direct-effects exception. It thus
granted summary judgment as to all panels delivered abroad. See Reconsideration
Order, A36.
Because the small set of Category 1 purchases remained for trial, the district
court certified its ruling for interlocutory appeal under 28 U.S.C. §1292(b). After
extended proceedings,4 this Court ultimately granted permission for this appeal.
STANDARD OF REVIEW
As explained above, some of Motorola’s theories were rejected on a motion to
dismiss, and some at summary judgment. Review in both postures is de novo,
“draw[ing] all favorable inferences” in Motorola’s favor. Williams v. Seniff, 342 F.3d
3 See, e.g., Williams v. C.I.R., 1 F.3d 502, 503 (7th Cir. 1993) (“The second judge … isnot free to [alter previous rulings] … merely because he has a different view of the law orfacts from the first judge.”).
4 For a full history of the proceedings in this Court, see Motorola’s Petition forHearing En Banc, Dkt. 76.
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774, 781 (7th Cir. 2003). The Court “must accept [the complaint’s] allegations as
true” for purposes of the dismissal, Brooks v. Ross, 578 F.3d 574, 581 (7th Cir.
2009), and all disputed facts must be assumed in Motorola’s favor. If “doubts
remain as to the existence of a material fact, then those doubts should be resolved
in favor of the nonmoving party and summary judgment denied.” Wolf v. Fitchburg,
870 F.2d 1327, 1330 (7th Cir. 1989).
SUMMARY OF ARGUMENT
Defendants seriously harmed the U.S. economy when they colluded to fix the
prices that Motorola paid for LCD panels. They nonetheless maintain that, because
they delivered their products to Motorola’s foreign subsidiaries, the FTAIA exempts
their manifestly anticompetitive conduct from the Sherman Act. That contention—
ultimately accepted by the courts below—is diametrically opposed to the actual
purposes and meaning of the FTAIA.
As an initial matter, the FTAIA was intended to protect U.S. companies
whose allegedly anticompetitive activities affected only foreign markets, while
reaffirming that “the U.S. antitrust laws reach foreign conduct that harms U.S.
commerce.” Minn-Chem, 683 F.3d at 858. The Supreme Court caselaw confirms
this point, as does the legislative history and context. See F. Hoffmann-La Roche
Ltd. v. Empagran S.A., 542 U.S. 155 , 165 (2004) (“[A]pplication of our antitrust
laws to foreign anticompetitive conduct [under the FTAIA] is … reasonable, and
hence consistent with principles of prescriptive comity, insofar as they reflect a
legislative effort to redress domestic antitrust injury that foreign anticompetitive
conduct has caused”). Indeed, Empagran makes clear that U.S. antitrust law has
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long applied to such conduct, and it must continue to do so if the U.S. is to protect
its own markets from foreign cartels. Motorola complains about the very
transactions that harmed U.S. commerce. The FTAIA was intended to preserve
that kind of claim, not circumscribe it.
In fact, defendants’ conduct remains subject to the Sherman Act under both
of the caveats in the FTAIA. Defendants conduct either “involve[d]” import
commerce, 15 U.S.C. §6a (introductory clause), or at least adversely affected U.S.
commerce in the precise way the FTAIA requires, id. §6a(1)-(2).
Defendants’ conduct “involved” import commerce because they specifically
targeted Motorola’s business manufacturing phones and importing them for sale to
U.S. customers. Defendants’ worked hard to get their price-fixed panels into
Motorola’s U.S. products. As the MDL court found, they targeted Motorola because
of its large share of the domestic mobile-phone market. And they knew their
conduct would raise those products’ cost.
Relying on Third Circuit precedent, the courts below nonetheless rejected this
argument, holding that this FTAIA provision only applies when the defendants
themselves import the price-fixed product. But even the Third Circuit has since
rejected that flawed rule, holding instead that conduct “involves” import commerce
when it “targets” or is “directed at” import commerce. That correct standard is
easily satisfied here.
In any event, defendants’ conduct at least adversely affected U.S. import or
domestic commerce under the FTAIA’s “direct-effects exception.” 15 U.S.C. §6a(1)-
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(2). This provision requires a (1) direct, (2) substantial, and (3) reasonably
foreseeable effect on U.S. commerce that (4) “gives rise to a claim” under the
Sherman Act. In seeking reconsideration, defendants did not even dispute that the
first three elements are met here. Nor could they, given that they knew their
conduct would put billions in price-fixed LCD panels into U.S.-bound phones sold to
U.S. customers.
Defendants do dispute whether these effects “gave rise to” Motorola’s claim.
Their view—adopted below—is that the claim belongs to Motorola’s foreign
subsidiaries, who cannot complain about effects in U.S. commerce because they are
“upstream” from any effects that follow from importing the finished phones.
Motorola, meanwhile, cannot raise its own claim because it is “downstream” from
the direct-purchaser subsidiaries, and so barred by Illinois Brick. This convenient
dilemma means that no one can complain about defendants’ conduct, despite its
substantial harms to U.S. commerce. This cannot be right, and indeed, this gambit
fails for three reasons.
First, defendants simply misunderstand the “gives rise to” requirement. It
does not limit plaintiffs to complaints exclusively about effects felt in U.S. import or
domestic commerce. Rather, it requires that the conduct the plaintiff complains
about have U.S. effects that are anticompetitive. The Supreme Court defined it just
that way in Empagran, holding that the FTAIA requires “an effect of a kind that
antitrust law considers harmful, i.e., the ‘effect’ must ‘give rise to a Sherman Act
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claim.’” 542 U.S. at 162. That is because the legislative history on this point is
unmistakable, and rejects defendants’ view in so many words.
Second, even if the “gives rise to” requirement did limit plaintiffs to
complaints exclusively about effects in U.S. commerce, Motorola clearly asserts such
claims. Defendants adversely affected the import commerce in Motorola phones,
and Motorola holds the claim on both sides of that import transaction. If the
subsidiaries do not have claims as importers whose sales were adversely affected by
defendants’ price-fixing, then Motorola surely does in buying the phones from the
subsidiaries. Defendants’ remarkable effort to avoid that result by incorporating
Illinois Brick into the FTAIA is unfaithful to both the FTAIA and Illinois Brick. It
also utterly ignores the economic substance of Motorola’s corporate operations with
respect to the transactions at issue.
Third, even rejecting all of the foregoing, Motorola would still prevail on the
single-price theory approved by the MDL court. The courts have unanimously held
that such a theory can prevail if there is a proximate causal relationship between
the U.S. price and the price paid abroad. There is no more proximate relationship
than an actual single price negotiated in the United States and applicable to
purchases both here and overseas. Defendants’ fixing of that price thus affected
U.S. commerce (because it inflated the price for domestic purchases of LCD panels)
and that gave rise to the claim of Motorola’s subsidiaries (when that price was
applied as such to panel purchases they received abroad).
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These arguments apply most clearly to LCD panels that ultimately ended up
in U.S. phones. But under the unique facts of this case, Motorola should be able to
recover for panels that ended up in phones sold abroad as well. That is because the
FTAIA determines what “conduct” is subject to the Sherman Act, and here,
defendants’ conduct did not differentiate between these two categories of LCD
panels. Instead, they simply marketed and delivered their price-fixed panels to
Motorola knowing that more would end up in the United States than anywhere else.
That “conduct” is thus subject to the Sherman Act, even for those panels that—on
an entirely post-hoc analysis—ended up being sold in phones abroad.
ARGUMENT
I. THE FTAIA DOES NOT LIMIT, AND WAS NOT INTENDED TOLIMIT, CLAIMS BY THE VICTIMS OF TRANSACTIONS THAT HARMU.S. MARKETS
Enacted in 1982, the FTAIA clarifies the reach of the Sherman Act—which,
by its own terms, applies to conspiracies “in restraint of trade or commerce … with
foreign nations.” 15 U.S.C. §1. Because “the statute is a web of words,” Hui
Hsiung, 2014 WL 3361084, at *10, its text and purposes are easily misunderstood.
But the bottom line is this: The FTAIA was enacted to protect U.S. companies
operating in export commerce and foreign markets, and so clarifies that U.S. law
applies only to claims by the victims of anticompetitive conduct that harms U.S.
markets. Conversely, it was not remotely intended to limit such claims, which have
long protected U.S. markets, businesses, and consumers from international cartels.
Indeed, the FTAIA “reaffirm[s] the well-established principle that the U.S. antitrust
laws reach foreign conduct that harms U.S. commerce.” Minn-Chem, 683 F.3d at
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858 (citing Empagran, 542 U.S. at 165). An interpretation foreclosing such claims
would thus be wildly at odds with the statutory goals.
Before the FTAIA, the Sherman Act’s reach was governed by United States v.
Alcoa, 148 F.2d 416, 444 (2d Cir. 1945) (L. Hand, J.). Under its test, “the Sherman
Act applie[d] to foreign conduct that was meant to produce and did in fact produce
some substantial effect in the United States.” Hartford Fire Ins. Co. v. California,
509 U.S. 764, 796 (1993). This “intended effects” test used markedly similar
language to the FTAIA’s “direct-effects exception.” See 15 U.S.C. §6a(1)-(2).
No court in this case has questioned whether that standard would be
satisfied here, and it clearly would be. Defendants delivered their products
knowing that they would be immediately incorporated into Motorola phones and
that more of those phones were headed to the U.S. than anywhere else. Indeed,
defendants worked hard to tap into the LCD demand provided by Motorola’s large
share of the domestic mobile-phone market, and specifically colluded with respect to
Motorola’s prices. See supra pp.5-8. The result was that Motorola ultimately
imported billions in price-fixed panels in the form of finished phones with inflated
prices. This easily suffices to show intended and substantial U.S. effects.
One problem with the Alcoa regime, however, was that it arguably left U.S.
companies subject to the stringent demands of U.S. antitrust law even when their
conduct was aimed solely at foreign markets—where their foreign competitors were
subject to less exacting rules. That is because the test applied to foreign conduct;
arguably, actions undertaken by domestic companies did not need to satisfy Alcoa
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at all. Accordingly, the FTAIA was passed “to exempt from the Sherman Act export
transactions that did not injure the United States economy,” Hartford Fire, 509 U.S.
at 796 (citing H.R. Rep. No. 97-686, pp.2-3, 9-10 (1982) (emphasis added)); its
predominant purpose was “to assure U.S. companies that they would not be subject
to potentially stricter U.S. antitrust laws when they were conducting business
wholly in foreign markets.” United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d
942, 962 (7th Cir. 2003) (Wood, J. dissenting) (opinion adopted in Minn-Chem, 683
F.3d at 845).
Textually, the FTAIA achieves this goal by declaring conduct involving
wholly foreign commerce outside the Sherman Act, while reaffirming that certain
such conduct remains within the Act’s reach. First, “conduct involving … import
trade or import commerce” remains subject to the Sherman Act. 15 U.S.C. §6a
(introductory clause). This is called the “import-commerce exclusion,” because
conduct involving import trade or commerce is only “subject to the Sherman Act’s
general requirements for effects on commerce, not to the special requirements
spelled out in the FTAIA.” Minn-Chem, 683 F.3d at 854.
Second, any conduct involving only exports or wholly foreign commerce
nonetheless remains subject to the Sherman Act if it “has a direct, substantial and
reasonably foreseeable effect” on U.S. import or domestic commerce, and that effect
“gives rise to a [Sherman Act] claim.” 15 U.S.C. §6a(1)-(2). This is called the
“direct-effects exception,” and it ensures that the Sherman Act continues to apply
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even to “truly foreign commerce” if it has a sufficiently proximate, anticompetitive
effect on U.S. markets. See Minn-Chem, 683 F.3d at 854.5
The legislative history and the doubled protection for “import commerce” in
the text strongly suggest that the FTAIA’s sole purpose was to immunize certain
export transactions from U.S. antitrust law, and that its test should not apply at all
to claims that have to do with import products and markets. See H.R. Rep. No. 97-
686 at 9 (“To remove any possible doubt, the subcommittee amendment modified
the legislation to make clear that it applied only to ‘export’ trade.”). Even the
language extending the bill to wholly foreign commerce was intended to redouble
protections for potential U.S. defendants for transactions lacking any domestic
effects—transactions already excluded from the Sherman Act as to foreign
defendants by Alcoa. See id. at 10 (noting change to avoid “any possibility that,
because of uncertainly growing out of American ownership, such firms will be
subject to a different and perhaps stricter regimen of antitrust than their foreign
competitors of foreign ownership”). There simply is no suggestion anywhere in the
legislative history—and it is frankly hard to imagine—that Congress intended to
limit the protections of U.S. law for U.S. markets, consumers, or businesses.
Indeed, “one of the [Sherman Act’s] express goals … was to combat the trusts
and cartels which, as Senator Sherman put it, were ‘imported from abroad.’”
Hearings on H.R. 2326 Before the Subcomm. on Monopolies and Commercial Law of
5 The direct-effects exception also applies to conduct that affects the businessopportunities of U.S. exporters, see 15 U.S.C. §6a(1)(B).
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the House Judiciary Comm., 97th Cong. 42 (1981) (Prof. James A. Rahl). As a
result, from shortly after adoption, the Sherman Act was applied to foreign conduct
by international conspiracies to the extent they caused anticompetitive effects in
the United States. See, e.g., United States v. Am. Tobacco Co., 221 U.S. 106, 172,
182 (1911); United States v. Nat’l Lead Co., 332 U.S. 319, 348 (1947); Timken Roller
Bearing Co. v. United States, 341 U.S. 593 (1951). As the Supreme Court made
clear in Empagran, the FTAIA is fully consistent with this longstanding view of how
the Sherman Act applies to foreign conduct whose anticompetitive effects at home
and abroad are “inextricably bound up.” 542 U.S. at 171-72 (discussing the above
cases and Industria Siciliana Asfalti, Bitumi, S.p.A. v. Exxon Research & Eng’g Co.,
No. 75 Civ. 5828, 1977 WL 1353 (S.D.N.Y., Jan.18, 1977), a case relied on in
drafting the FTAIA). In such cases, even wholly foreign plaintiffs (unlike Motorola)
can invoke the protections of the Sherman Act. See id.
To be sure, courts have recognized that the language of the FTAIA has a
further effect: It clarifies that conduct affecting only foreign commerce is outside
the Sherman Act whether the defendant is a U.S. company or not, thus “assur[ing]
foreign countries and their citizens that they would not be swept into a U.S. court to
answer under U.S. law for actions that were of no legitimate concern to the United
States.” United Phosphorus, 322 F.3d at 962 (Wood, J., dissenting). But as the text
indicates, it does so largely by codifying Alcoa’s foreign-conduct standard. No court
has remotely held that sales by international cartels to U.S. plaintiffs that would
have been subject to a Sherman Act claim under Alcoa would somehow flunk the
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FTAIA. That would, in fact, be a very inappropriate result for a statute that was
“not intended to restrict the application of American laws to extraterritorial conduct
where the requisite effects exist.” H.R. Rep. No. 97-686, at 13.
Accordingly, as this Court articulated the test in Minn-Chem, the FTAIA
preserves a Sherman Act claim if the defendant’s conduct either (1) involves import
trade or commerce or (2) creates a “reasonably proximate,” “substantial,” and
“foreseeable” effect on import or domestic trade or commerce that is subject to a
“substantive claim under the Sherman Act,” 683 F.3d at 854. This test “remov[es]
from the Sherman Act’s reach … commercial activities taking place abroad, unless
those activities adversely affect domestic commerce [or] imports to the United
States.” Empagran, 542 U.S. at 161 (emphasis added).
This case should, therefore, be an easy one under the FTAIA. Motorola’s
complaint concerns the sale of price-fixed goods into the stream of import commerce.
Defendants not only knew that the price-fixed parts they sold to Motorola would
end up inside the United States in Motorola’s U.S. phones, they worked hard to get
their panels into those particular phones. And that is what actually happened, with
billions in price-fixed panels reaching U.S. consumers. Defendants’ conduct thus
either involved import commerce (and so is excluded from the FTAIA entirely) or at
least affected U.S. commerce in a direct, substantial, and foreseeable manner that
gives rise to a “substantive claim” of horizontal price-fixing under Sherman Act
Section 1. See Minn-Chem, 683 F.3d at 854. Or, in the Supreme Court’s words, the
transactions underlying Motorola’s complaint are “commercial activities taking
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place abroad, … [that] adversely affect domestic commerce [or] imports to the
United States,” Empagran, 542 U.S. at 161, and so are subject to the Sherman
Act—both originally and after the FTAIA.
As further explained below, infra pp.32-34, defendants do not really dispute
that their conduct directed at Motorola had adverse effects on U.S. commerce. They
argue instead that the injured parties were foreign corporations (Motorola’s
subsidiaries), complaining about foreign injuries. Whatever relevance that point
might have in the abstract, it is utterly irrelevant here, because Motorola entities
are on both sides of the import transaction—Motorola’s subsidiaries have assigned
whatever claims they have to Motorola, see TAC ¶28, SA142-43; and, in any event,
Motorola itself imported the phones at prices and quantities that were adversely
affected by defendants’ price-fixing. See supra pp.9-14. Motorola thus presses the
claims of all the entities most proximately harmed by conduct that “adversely
affect[ed] … imports to the United States,” Empagran, 542 U.S. at 161; if it cannot
sue to recover, no one can. And that proposition would run headlong into Minn-
Chem and Empagran, where both this Court and the Supreme Court reaffirmed
that such conduct remains subject to the Sherman Act.
Indeed, the foregoing demonstrates that defendants’ emphasis on the
corporate relationship between Motorola and its subsidiaries is entirely misplaced.
If the FTAIA exempts defendants’ conduct from the Sherman Act, then not just
Motorola but the U.S. economy as a whole will stand exposed. See Minn-Chem, 683
F.3d at 863 (noting that FTAIA amends Sherman Act for all purposes, including
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DOJ prosecutions). But when it comes to protecting the entire American economy
from international cartels, it could not possibly matter whether Motorola structured
its own corporate relationships as “subsidiaries” or “unincorporated divisions.” See,
e.g., Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 774 (1984)
(condemning antitrust rule that would treat subsidiaries and divisions differently
where it “serves no valid antitrust goals”). What does matter is that—under either
structure—Motorola’s claims relate directly to conduct that manifestly harmed the
United States.
II. DEFENDANTS’ CONDUCT TARGETED IMPORT COMMERCE
The MDL court held that defendants’ conduct did not satisfy the “import-
commerce exclusion” because the importation of the price-fixed LCD panels
occurred when Motorola imported the finished phones, rather than defendants
importing the panels themselves. Citing the Third Circuit’s decision in Turicentro,
303 F.3d at 303, the MDL court held this fact “dispositive,” and the district court
below refused to reconsider. See Reconsideration Order, A54. Both courts failed to
recognize, however, that the Third Circuit has since expressly—and correctly—
rejected this very proposition.
In Animal Science Products v. China Minmetals Corp., 654 F.3d 462 (3d Cir.
2011), the Third Circuit made clear that “[f]unctioning as a physical importer may
satisfy the import trade or commerce exception, but it is not a necessary
prerequisite.” Id. at 470 (emphasis added). Instead, the import-commerce exclusion
“requires that the defendants’ conduct target import goods or services.” Id. As in
this case, the district court had decided the issue on a motion to dismiss. See id. at
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464. The Third Circuit thus remanded for the district court to “assess whether the
plaintiffs adequately allege that the defendants’ conduct is directed at a U.S. import
market and not solely whether the defendants physically imported goods into the
United States.” Id. at 471. This Court cited the “targeting” standard with apparent
approval in Minn-Chem, see 683 F.3d at 855, but—like the district court in Animal
Science—the courts below engaged in none of the analysis it requires.
For three reasons, the Third Circuit’s actual standard is more appropriate
than the per se, “defendant-as-physical-importer rule” the courts below mistakenly
attributed to it. First, the statute refers to conduct “involving … import trade or
import commerce,” and not merely “imports,” “importation,” or “importers.” 15
U.S.C. §6a. Had Congress intended the import-commerce exclusion to apply only
when the defendant functioned as the physical importer, it could easily have said
so. Indeed, the requirement that defendants’ conduct “involve” imports—or, even
more broadly, “involve import trade or import commerce”—necessarily points to
something beyond physical imports themselves, but short of a mere “effect” covered
by the direct-effects exception. The Third Circuit’s targeting standard fits that bill
precisely.
Notably, “conduct involving import trade or import commerce” easily applies
to a sale abroad of a major input that defendants know will be immediately
imported into the United States in a finished product. In fact, when the U.S. Code
elsewhere defines “import trade” in setting the jurisdiction of the International
Trade Commission, it expressly includes “the sale for importation” of offending
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articles. See 19 U.S.C. §1337 (emphasis added). In that context, defendants
themselves have previously argued that selling component parts for importation in
finished products is “import trade” (let alone conduct “involving” import trade). In
an ITC complaint seeking exclusion of competing products, Samsung maintained
that the delivery of patent-infringing LCD panels to Motorola in Singapore for
incorporation into U.S.-bound phones was an unfair practice in “import trade”
under §1337. See, e.g., In the Matter of Certain LCD Devices, No. 337-TA-631 (Dkt.
2586), SA4. Defendants have never explained why U.S. laws restricting competition
would reach the very deliveries at issue here, while U.S. laws protecting
competition and U.S. markets would not.
Second, the targeting standard is much more consistent with the FTAIA’s
purposes. The FTAIA carefully excluded import commerce because “import
restraints … can be damaging to American consumers.” H.R. Rep. No. 97-686 at 9.
When it comes to the harms from import-market restraints, however, it makes no
difference whether the defendant did the importing or instead targeted the
importer. Either way, the import market is restrained, and the harm falls squarely
upon the U.S. economy.
Finally, the rule adopted below creates a dangerous safe harbor. Global
supply chains can involve a number of steps without affecting the economic
substance of a transaction or course of conduct. Defendants who intentionally
target the stream of U.S. import commerce should not be able to avoid liability by
simply interposing an extra step or party between themselves and the import
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market. Other nations have recognized as much in applying their own domestic
antitrust laws to foreign conduct where a third, innocent party was the technical
importer of the cartelized good or service. See Supplemental U.S. Br., Dkt. 57, at 9
& n.7. The targeting standard correctly addresses the substance and intent of the
defendants’ behavior. The district court’s rule, by contrast, addresses an incidental
fact that is subject to manipulation.
Adopting the targeting standard would not mean that all conduct involving
foreign commerce is subject to the Sherman Act whenever some product ends up
here. As this Court has recognized, claims permitted by the FTAIA’s import-
commerce exclusion must still satisfy Alcoa; the plaintiff must show that import
commerce “has been substantially and intentionally affected by an anticompetitive
arrangement.” Minn-Chem, 683 F.3d at 855. These requirements ensure that the
import-commerce exclusion will only operate when the defendants’ conduct is
directed at import markets, and excludes situations where the product just happens
to end up on U.S. shores because of unforeseen or incidental decisions by the
plaintiff or some third party. And it will also exclude situations involving sub-
components or sub-sub-components that have multiple, worldwide uses—making
any impact on U.S. markets unintentional, insubstantial, or both.
That said, under the correct “targeting” standard, this case is quite clear. As
the MDL court found, defendants were always aiming to access Motorola’s share of
the U.S. consumer mobile-phone market, and their conduct in helping design U.S.-
bound products and exchanging Motorola-specific pricing information makes their
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intent to affect Motorola’s U.S. imports indisputable.6 At the very least, as in
Animal Science, the district court applied the wrong standard on a motion to
dismiss, necessitating a remand.
III. DEFENDANTS’ CONDUCT AT LEAST SATISFIES THE FTAIA’SDIRECT-EFFECTS EXCEPTION
Even if this Court concludes that defendants’ conduct did not “involve” import
commerce, that would only clarify that defendants at least affected U.S. commerce
in the precise manner the FTAIA contemplates. This Court’s unanimous, en banc
decision in Minn-Chem holds that the direct-effects exception requires only
“reasonably proximate” effects on U.S. commerce because demanding a more
“immediate consequence on import or domestic commerce comes close to ignoring
the fact that straightforward import commerce has already been excluded from the
FTAIA’s coverage.” 683 F.3d at 857 (emphasis added). This observation has
particular salience here. If defendants’ hard-core anticompetitive conduct in
manipulating Motorola’s prices for LCD panels did not actually involve import
commerce, then it was—at the very most—only one small step removed. Put
otherwise, given that the FTAIA already excludes conduct involving import
commerce, it is hard to see what else the direct-effects exception would cover, if not
a case like this.
6 In some cases, the most proximate victims of conduct targeting U.S. imports may beforeign importers. That would present the (non-FTAIA) question whether U.S. law shouldprovide a claim to the first domestic purchaser instead—which would require an exceptionto traditional rules regarding downstream recovery. See, e.g., infra pp.42-47; U.S.Rehearing Br., Dkt. 30, at 14 & n.2. That concern is irrelevant here, however, becauseMotorola holds the claim on both sides of the import transaction.
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A. Defendants’ Conduct Had A Direct, Substantial, AndReasonably Foreseeable Effect On U.S. Commerce.
Neither court below denied that defendants’ price-fixing had a direct,
substantial, and reasonably foreseeable effect on U.S. import or domestic commerce.
As the United States has pointed out, defendants did not even raise this issue in
seeking reconsideration. See U.S. Rehearing Br., Dkt. 30, at 4, 6. Nevertheless, we
briefly explain the multiple ways in which defendants’ conduct sufficiently affected
U.S. commerce under the direct-effect exception’s three proximity requirements.
As explained above, selling price-fixed LCD panels into the stream of import
commerce directly affected U.S. markets. It made Motorola’s phones more
expensive to import because of the inflated price for a key component—an effect felt
by Motorola in U.S. import commerce. See supra pp.9-14. That effect would also be
felt in domestic commerce, with consumers likely paying more for phones. Supply
restrictions would also have resulted in fewer domestic sales and deadweight loss in
the U.S. economy. These are exactly the kinds of domestic, anticompetitive injuries
that call for the application of U.S. law under “the well-established principle that
the U.S. antitrust laws reach foreign conduct that harms U.S. commerce.” Minn-
Chem, 683 F.3d at 858 (citing Empagran, 542 U.S. at 165).
There are other direct effects on U.S. commerce as well. Defendants affected
U.S. commerce by setting a single, artificially-inflated price in the United States
that applied to all Motorola LCD purchases around the globe, including its U.S.
purchases. See supra pp.8-9. And when that fixed price was applied to panels
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delivered abroad for inclusion in products bound for the U.S., it clearly affected the
U.S. import market.
That these effects were “reasonably foreseeable” is not subject to dispute.
Not only should defendants have foreseen that their price-fixed panels would end
up in Motorola phones imported to the United States, they worked hard to bring
about that result. See supra pp.5-8.
These effects were also substantial. Defendants’ conduct ultimately resulted
in the importation of billions in price-fixed LCD panels. And Motorola sold millions
of phones incorporating those panels in the United States—more than anywhere
else. Accordingly, as in Minn-Chem, there can be “little dispute that [Motorola] has
alleged substantial effects.” 683 F.3d at 856. “Wherever the floor may be, it is so
far below these numbers that we do not worry about it here.” Id.
Finally, it is also clear that the effects of defendants’ component price-fixing
on U.S. commerce were “direct.” This Court held in Minn-Chem that the FTAIA’s
“directness” requirement is satisfied by “reasonably proximate” effects on U.S.
commerce, rejecting the Ninth Circuit’s suggestion that the effect must be
“immediate.” See 683 F.3d at 856-57. In so doing, it expressly adopted the position
of the United States, see id. at 857, which advocated a more practical standard with
a view to precisely this case:
Suppose … a conspiracy of foreign manufacturers fixed the price ofinputs sold to other foreign manufacturers which incorporate the inputinto finished goods sold in the United States. If successful, theconspirators’ restraint of trade in the inputs … would proximatelycause effects on import commerce in the finished goods, notably by
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increasing the price. This effect should be viewed as direct, andtherefore, the direct-effects exception would apply ….
U.S. Minn-Chem Br. 7-8.
Since then, the Second Circuit has decided this very issue and held that
claims based on component price-fixing can have “direct” effects on downstream
markets for FTAIA purposes. See Lotes Co. v. Hon Hai Precision Indus. Co., 753
F.3d 395, 413 (2d Cir. 2014). Adopting this Court’s standard from Minn-Chem, it
held that
[t]here is nothing inherent in the nature of outsourcing orinternational supply chains that necessarily prevents the transmissionof anticompetitive harms or renders any and all domestic effectsimpermissibly remote and indirect. Indeed, given the important rolethat American firms and consumers play in the global economy, weexpect that some perpetrators will design foreign anticompetitiveschemes for the very purpose of causing harmful downstream effects inthe United States.
Id. That, of course, is a precise description of this case. Accordingly, the Second
Circuit’s holding that “anticompetitive injuries can be transmitted through multi-
layered supply chains,” is directly on point, id. at 412, and rejecting the effect here
as indirect would represent a square circuit conflict.
Indeed, the facts of Lotes involve a far more remote effect on U.S. commerce.
The plaintiff there was a Taiwanese company, manufacturing a minor component in
China, which might then be incorporated into others’ products, which yet further
parties might import into the United States. Lotes also asserted a much more
diffuse kind of injury, related to standard-setting practices in the component
technology rather than price-fixed sales specifically targeted at a U.S. company. Id.
at 399-402. The far-more-proximate effect here thus cannot possibly be indirect.
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B. The Effects Of Defendants’ Conduct Give Rise To A SubstantiveClaim Under The Sherman Act.
As explained above, supra p.13, the MDL court initially concluded that—even
if defendants’ conduct adversely affected U.S. commerce—Motorola could not satisfy
the FTAIA’s requirement that those effects “give rise to” its claim because it was
limited its subsidiaries’ “foreign injury” claims, which arose prior to any injury
caused by the importation of finished phones. The MDL court did allow Motorola to
proceed on the “single-price theory,” but the district court later rejected that holding
on remand for trial. See Reconsideration Order, A36.
Both holdings, however, are wrong on several counts. Initially, the “gives rise
to” requirement does not require that a plaintiff complain exclusively about
domestic effects when its claim concerns the very conduct that both caused its
injury and harmed U.S. commerce. And even if it did, Motorola has just such a
claim under both the theories rejected below.
1. The “gives rise to” element requires only that theplaintiff complain about anticompetitive conduct.
The confusion below on the “gives rise to” element of the direct-effects
exception stems from a fundamental misunderstanding of the statutory text. This
language was added to ensure that the effects of defendants’ conduct gave rise to a
substantive violation of the Sherman Act—i.e., that they were anticompetitive.
Accordingly, the FTAIA permits a plaintiff to complain about transactions that
harm it when those transactions cause a direct, substantial, reasonably foreseeable,
and anticompetitive effect on U.S. commerce.
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Those are the exact terms of the direct-effects exception, and the “gives rise
to” requirement, as interpreted by the Supreme Court in Empagran. There, the
Court held that the FTAIA brings conduct involving foreign commerce back within
the Sherman Act if it “(1) sufficiently affects American commerce, i.e., it has a
‘direct, substantial, and reasonably foreseeable effect’ on American … commerce,
and (2) has an effect of a kind that antitrust law considers harmful, i.e., the ‘effect’
must ‘give rise to a Sherman Act claim.’” 542 U.S. at 162 (brackets omitted,
emphasis added). The Supreme Court’s use of the definitional term “i.e.”
demonstrates that it clearly understood the purpose and proper understanding of
“gives rise to”: It requires only “an effect of a kind that antitrust law considers
harmful.” Id.
This Court demonstrated the identical understanding in Minn-Chem. In
addressing the concern that the FTAIA would permit too many U.S.-law claims, this
Court “note[d] that §6a(2) will protect many a foreign defendant” because “a great
many joint-selling arrangements are legal, efficiency-enhancing structures.” Minn-
Chem, 683 F.3d 858. The Court thus correctly recognized that §6a(2)—the “gives
rise to” requirement—simply addresses whether the domestic effect at issue is
anticompetitive. Accordingly, as in Empagran, this Court held that the “gives rise
to” element should be read to require a “substantive claim under the Sherman Act,”
683 F.3d at 854 (emphasis added).
To be sure, the Supreme Court held in Empagran that a foreign plaintiff
could not sue an international cartel for price fixing by relying on the unrelated
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injuries that someone else suffered in the United States. But that holding has no
application here. Almost every page of Empagran stressed that the injury to the
foreign plaintiffs there was “independent” of any domestic effects. See 542 U.S. at
155-75. Here, as the United States has already pointed out, see U.S. Supplemental
Br., Dkt. 57, at 14-15, the claim is quite different: The domestic effects and the
anticompetitive injuries at issue are inextricably intertwined because they arise
from the very same transactions. Unlike the Empagran plaintiffs, Motorola
complains about the very particular activities that were intended to and actually
did harm import and domestic commerce. And as the Supreme Court explained in
Empagran itself, the FTAIA only “remov[es] from the Sherman Act’s reach …
commercial activities taking place abroad, unless those activities adversely affect
domestic commerce [or] imports to the United States.” 542 U.S. at 161.
Defendants—and the courts below—thus subtly misread Empagran in
suggesting that it requires that the domestic effects of a cartel’s price-fixing must
“give rise to ‘the claim at issue’” in the sense that the claim must relate exclusively
to domestic effects, rather than the conduct that causes them. See 542 U.S. at 174.
That argument takes one clause of one sentence of the Empagran decision entirely
out of context. The question in Empagran was whether foreign plaintiffs who
bought price-fixed goods overseas that never entered the U.S could rely on injuries
caused by the same cartel to other, unrelated U.S. plaintiffs because the FTAIA says
that the domestic effect must only give rise to “a claim.” Th